Another way of referring to easy or easier monetary policy, often used as a code word by central bankers
Bank for International Settlements (BIS):
International organization which fosters monetary and financial cooperation and serves as a bank for central banks.
A type of option whose payoff depends on whether or not the underlying asset has reached or exceeded a predetermined price. A barrier option can be a knock-out, meaning it can expire worthless if the underlying exceeds a certain price, limiting profits for the holder but limiting losses for the writer. It can also be a knock-in, meaning it has no value until the underlying reaches a certain price.
A person who believes that a stock, index or market will decline in value. The opposite is a Bull.
The standard to measure, monitor, price or evaluate a security or derivative.
The price at which a market maker is willing to buy a certain security.
The level whereby an investor achieves neither profits nor losses. Often used in options and other derivative trading.
The person/party that acts as an agent for his/her customer. They are the middle agents between traders (buyer and seller) and improve liquidity.
A forex financial expert who uses electronic communications networks (ECNs) to provide its clients direct access to other participants in the currency markets. Because an ECN broker consolidates price quotations from several market participants, it can generally offer its clients tighter bid/ask spreads than would be otherwise available to them.
BOC: Bank of Canada
BOE: Bank of England
BOJ: Bank of Japan
Buba: The central bank of Germany, or else Bundesbank.
Bunds: German 10-year government bonds. The 5 year is called Bobl and the 2-year Schatz.
Candle / Candlestick: The most recognised method of charting price action.
Cheap: This term is used to compare various securities. When one says a security is cheap, it is used in a relative sense.
Corporates: The treasury departments of large multinational corporations. They are responsible for hedging the forex exposures of their firms, which can have dramatic impacts on earnings for firms with large overseas sales.
CME: The Chicago Mercantile Exchange.
Correlation: The statistical relationship between 2 variables. A positive correlation means that when one variable moves in a certain direction, so will the other. The opposite is a negative correlation
Coupon: The contractual rate of interest on a credit instrument
Custody bank: A bank which holds securities in custody for other financial institutions, does their bookkeeping and settles their trading activity. Examples include Bank of New York Mellon, State Street and Northern Trust Co. Also know as custodians.
Credit Crunch: When credit availability is restricted, hence Crunch: normal economic or financial activity is impacted.
Delta: The ratio comparing the change in the price of the underlying asset to the corresponding change in the price of a derivative. Sometimes referred to as the “hedge ratio”.
Deflation: This is where you have a decrease in prices in the economy. This may occur for various reasons, i.e. reduced demand in the economy, a stronger currency meaning imports are cheaper etc.
Derivative: A financial product which derives its value from an underlying security. An example is a future or an option.
Dovish: A statement related to monetary policy which implies looser policy (lower rates).
Refers to monetary policy tending towards lower interest rates. Monetary authorities (a central bank) will want easy monetary policies (lower interest rates and even perhaps a program like quantitative easing, in order to encourage economic growth)
EBS (Electronic Broking Services):
A wholesale electronic trading platform used to trade between interbank dealers. Its like an ECN for banks.
ECB: European Central Bank
Ecofin: A council consisting of the economy and finance ministers of the European Union. They meet once a month.
Emergency Liquidity Assistance (ELA):
The provision of liquidity by member national banks of the European System of Central Banks (Eurosystem) to individual banks. The provision of liquidity is made under exceptional circumstances to illiquid institutions unable to obtain liquidity either in the market or from participation in monetary policy operations (shut out by the ECB). Loans are made against collateral and are at the risk of the national central bank.
ETF: An Exchange Traded Fund. You can trade many ETFs in our platform.
Eurodollar: Not the Euro; a pet peeve of many old FX traders is to hear the euro currency referred to as ‘eurodollar’. A eurodollar refers to a US dollar on deposit at banks outside the US. Similarly, eurodollar futures are a very popular interest-rate futures contract.
Eurogroup: A group of finance ministers of countries who are members of the euro. It’s spokesman is Jean-Claude Junckers, the finance minister of Luxembourg.
European Financial Stability Facility (ESFS):
ESFS is a legal instrument agreed by the 27 member states of the European Union on 9 May 2010, aiming at preserving financial stability in Europe by providing financial assistance to eurozone states in difficulty. Colloquially known as ‘euro SPV’ or ‘euro TARP’.
To trade counter to. For instance, to “fade a trend” is to counter the trend. To fade a rumour is to believe it to be untrue and do the opposite of what the rumour would suggest.
Fed: The Federal Reserve, the central bank for the United States.
The indifference point from a modelling perspective, as to whether to buy or sell a security. If the market value is greater then the fair value, then it can be suggested that the security should be sold.
Fast Market: Market where prices and volumes change very quickly.
A useful tool for traders as markets correct during trends. Technicians look for support on pullbacks at 38.2% of the uptrend or rebounds in an downtrend, 50% and 61.8%. Derived from the “golden ratio” of Italian mathematician Fibonacci.
GTC ‘Good till cancel’:
An order to buy or sell a security at a set price that is active until the investor decides to cancel it or the trade is executed. If an order does not have a good-'til-canceled instruction then the order will expire at the end of the trading day the order was placed.
A cash market transaction in which delivery of the commodity is deferred until after the contract has been made. Although the delivery is made in the future, the price is determined on the initial trade date.
A Future is an obligation to buy or sell a certain underlying product at a certain expiry date at an agreed price.
UK stock index, the FTSE100
Forward guidance can take many forms, but, in essence all of them involve a central bank saying, or at least hinting at, what its going to do with monetary policy do before they do it. There is a fuller explanation at this post.
Federal Open Market Committee, the monetary policy-setting group within the Federal Reserve Bank of the USA. It consists of 12 members, the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents 9selected on a rotating basis for one-year terms).
Concepts in the options markets are expressed in terms of the Greek alphabet. Gamma refers to the rate of change in an option’s delta relative to the price of the underlying asset. A short gamma position will become shorter as the price of the underlying asset increases. As the market rallies, you are effectively selling more and more of the underlying asset as the delta becomes more negative.
Gilts: UK government bonds
Give: To transact a deal on the bid price, i.e. to sell at the bid price, to whoever is bidding
Given: Past tense of give, what has happened if you’ve crossed the spread and sold at the bid
Governing Council (of the ECB):
The Governing Council is the 23-member monetary policy-setting group within the European Central Bank.
When bondholders are forced or voluntarily take a worse deal than the one outlined in the bond covenant.
A statement regarding monetary policy which implies tighter policy (higher rates)
(Ichimoku Kinko Hyo)A series of technical indicators packaged together and overlaid on a candlestick or bar chart to form the Ichimoku chart. Popularly used for yen crosses.
The bank-to-bank market in foreign exchange. Banks can deal directly with each other in currencies, most often over the phone, or through EBS or Reuters Dealing. ‘Interbank’ dealing usually refers to the direct dealing between banks with no broker intervening (classing EBS and Reuters as brokers in this context as they serve to match up buyers and sellers). Bank ‘A’ contacts Bank ‘B’ and asks for a price in (for example) USD/JPY, in an amount (20 million USD, for example). Bank ‘B’ ‘makes’ (in this way banks are market makers to each other) a price, showing a bid and an offer: Bank A is then free to transact a deal on the shown bid or offer, or to pass and not deal.
Jiji: A major Japanese news agency (like Reuters)
JGB: Japanese government bonds.
Jobber: A trader who buys and sells, often frequently, to seize short-term market opportunity. Can be intraday or over a couple of days. This doesn’t exclude him/her from having a longer term view, and will often trade in the short term contra to that core view
Long: Being long is when you’ve bought with the intention of selling at a higher price in order to profit. For example, being long EUR/USD is the act of buying euro against USD, with the plan to sell the euro at a higher price in order to profit.
Long-term refinancing operations (LTRO):
Long-term collateralized loans extended by the ECB to member banks. Terms have ranged from 3 months up to 3-years.
Leverage: The concept of increasing, multiplying or magnifying the market impact of an investment.
Limit: An order which is to be filled at the stated price or better.
Liquidation: Act of buying/selling some or all positions to reduce or close out a portfolio.
Long: Is a purchased position or a party who is bullish on the market. Hence they get into a position, where they expect the price to rally, and will make money when it does so.
Margin: Amount of capital which needs to be put up as collateral to open a new trading position
Market if touched: Is an order that becomes a market action when a price is hit.
Market on Close: An order to buy or sell on the close of the market. You can also have buy on close or sell on close.
Market on Open: An order to buy or sell on the open of the market. You can also have buy on open or sell on open.
Market by Value: The value of an open position. Determined by multiplying the known or implied prevailing price by the quantity
Mine: What an interbank dealer will say to a counterparty or voice broker when he (or she) wants to buy.
MPC: Monetary Policy Committee of the Bank of England, which meets once a month to decide on the official interest rate in the UK.
NYMEX: The New York Mercantile Exchange
OATs: French government bonds
Open Order: An order which remains live until it is executed or cancelled
Offer: A sell order places at or above the market price.
OMT: The ECB program introduced in August 2012 to directly buy government bonds in the secondary market. Can only be used after a government asks for financial assistance.
Option Expiries: The standard expiry time is 10 am New York. Mostly vanilla contracts (see vanilla options) but also some barrier option interest too (see barrier options)
Outside day key reversal: Key reversals are outside days at either trend highs or trend lows. A key reversal occurs when a market makes a new high, then reverses down, takes out the previous day’s low and closes lower than the previous day’s close.
Paid: Past tense of pay, what has just happened if you’ve crossed the spread an bought at the offer
PBOC: The People’s Bank of China, China’s central bank
Plain vanilla option: The most basic option type with a simple expiration date and strike price with no additional features.
Point and Figure: A method of charting price action.
Prime brokers: Firms which allow clients like hedge funds to use their credit facilities to access financial markets.
Quantitative easing: A strategy used by central banks once targeting short-term interest rates becomes ineffective because rates have reached zero (or close to it). The central bank buys assets, typically government bonds, in an effort to inject money into the economy.
Range: The difference between the high and low traded prices for a time series for a stated period.
RBA: Reserve Bank of Australia (central bank)
RBNZ: The Reserve Bank of New Zealand, New Zealand’s central bank
Real money: Generally refers to non-leveraged funds (mutuals, for example).
REIT: Real Estate Investment Trust (the BOJ has recently been buying Japan REITs as part of its APP easing program)
Round-trip: The opening purchase or sale of a stock or futures contract and the subsequent opposite and closing transaction in the same contract. Transaction costs are usually quoted on a round-trip basis.
Securities Market Program:
The program in which the ECB purchases government bonds of members states where the market has pushed yields up beyond what the ECB sees as fundamentally justifiable. The ECB sterilizes the euros added to the monetary system on a weekly basis so as not to impact overall money supply. It is a method of monetary policy transmission.
In financial markets being short refers to selling something you don’t own (with the intention of buying it back at a lower price in order to profit). It’s the same in the FX market. For example, to be short EUR/USD means you have sold Euros against the dollar, with the intention of buying back EUR/USD when the rate has fallen in order to profit.
Slippage: Refers to a scenario where the market jumps prices.
Spread: The simultaneous purchase and sale of two related instruments. Strategy tries to transform outright price risk into a basis or relationship risk position. Also viewed as the difference between the bid and the offer or the profit margin.
Spot market: In interbank FX the spot market is the market for currencies to be delivered within a two-day period (or oneday in the case of the USD/CAD and some others)
Stagflation: A situation where you have a relatively high rate of unemployment couples with a relatively moderate to high rate of inflation.
Stop: An order which gets executed when a level is hit or crossed. A sell stop order is used for a long position, and will be placed below the market, to stop any further losses from being taken on. A buy stop is the opposite.
STP – ‘Straight through processing’:
An initiative used by companies in the financial world to optimize the speed at which transactions are processed. This is performed by allowing information that has been electronically entered to be transferred from one party to another in the settlement process without manually re-entering the same pieces of information repeatedly over the entire sequence of events.
Sovereign: A debt security issued by the government other than the United States of America
A price level where securities are expected to receive buy orders. It refers to the boundary of some described trading range, and is usually at the bottom. The opposite is Resistance, which is where the sale orders are expected.
Sovereign wealth fund (SWF):
A fund set up by a country with large foreign exchange reserves to help manage those reserves. Typically SWFs purchase long-term securities to try and enhance investment returns beyond what central banks typically earn holding government debt.
Sovereign names: Used interchangeably for sovereign wealth funds or central banks.
SNB: Swiss National Bank, the Swiss central bank.
Tankan: There is a Bank of Japan Tankan Survey and a Reuters Tankan Survey. Both are surveys of manufacturing and service companies designed to assess business conditions in Japan. The BOJ Tankan is conducted quarterly, the Reuters Tankan is monthly.
Taper / tapering: The procedure of slowing down (not stopping) of purchases is referred to as tapering.
Technical Analysis: Study of market behaviour which tries to discern patterns which enhance position taking. We will go into more detail later.
Thin: A market condition where prices are not as liquid as would normally be expected.
Tight: (Tightening) refers to monetary policy tending towards higher interest rates. Monetary authorities (a central bank) will want tighter monetary policies (higher interest rates, at times when inflation is too high or threatening to get too high)
Trend: A tendency of a currency pair to move in a consistent direction. For example, EUR/USD is facing one of the worst downtrends in history after the decision of the ECB to introduce easing.
When a price heads off in one direction only to be followed very quickly by a move in the opposite direction. For example, EUR/USD may break technical resistance at a price, trade 10 or so points higher than a few minutes later have fallen 30 or more points. Longs have been ‘whipsawed’.
Yard: Market slang for “billion”.
Yield: The rate of return on an asset. Expressed as a percentage of the current market price.
Yield curve: A graphical or tabular representation of interest rates representation of interest rates across different maturities.